Gold has just
entered its strongest time of the year, embarking on a major
seasonal rally. Naturally this is very bullish for not only this
metal, but the companies that wrest it from the bowels of the
Earth. Gold’s well-established seasonality is important for
speculators and investors to understand, as it offers many great
insights to help fine-tune the timing of precious-metals-related
trades.

Seasonality is
somewhat counterintuitive for gold. For a commodity like wheat that
can only be grown and harvested in certain times of the year,
seasonality is perfectly logical. Wheat supply fluctuates greatly
based on celestial mechanics. But gold? Unlike the grown
commodities, this metal is mined globally at a remarkably-steady
pace year-round, regardless of sunlight, temperature, or weather.

But of course
supply is only half of the price equation, equally if not more
important is demand. And for a variety of interesting
income-cycle and cultural reasons, gold demand ramps up dramatically
at certain times in the calendar year. Since mined supply is
essentially fixed and can’t swell to meet these big demand surges,
gold’s price is quickly bid higher. Gold’s seasonality is
demand-driven.

Speculators and
investors who understand when gold’s seasonal demand spikes
occur greatly increase their odds of buying precious-metals
positions relatively low and selling them relatively high. So I
always pay attention to gold’s strong seasonality in my own gold,
silver, and precious-metals-stock trading. About once a year or so
I update my gold-seasonality studies with the latest data to
illuminate evolving trends.

As always, an
important caveat is necessary up front. Realize that seasonality is
merely a secondary driver. Seasonals can be temporarily
overridden by gold’s primary drivers, greed and fear. A perfect
example just occurred heading into autumn. Even though gold’s
seasonals looked very bullish then, this metal was
seriously
overbought so a major correction was due as I warned at the
time. Overbought gold is still likely to correct despite strong
seasonals, and oversold gold is still likely to surge despite weak
seasonals.

Think of seasonals
like prevailing winds. When you drive your car down the highway, a
tailwind is far preferable to a headwind. Though your car’s primary
driver is its engine, having a tailwind still makes the trip cheaper
and more pleasant. When gold’s primary drivers are positioned to
support a major rally, seasonal tailwinds raise the odds this rally
will be larger and faster than it would have been if faced with
seasonal headwinds.

Most traditional
seasonal analysis considers multi-decade timeframes, like 30 years.
But prices behave very differently in bulls and bears, so I believe
it is more useful for trading purposes to limit this
gold-seasonality study to this metal’s current secular bull. It was
stealthily born in April 2001, with gold loathed and languishing in
the $250s! Less than a month later at $264, I first started
recommending physical gold coins as long-term investments to our
newsletter subscribers. They’ve earned fortunes since!

With gold blasting
from around $250 to nearly $1900 over the past decade, it is
necessary to individually index each calendar year and month
to do seasonal studies. Indexing renders each year and month in
perfectly-comparable percentage terms. While a $15 daily move in
gold is yawn-inducing today, back in 2001 such a then-epic move
never even happened! But a 2% daily rally today is perfectly
comparable with a 2% daily rally back then, or anywhere in between.

My indexing
methodology is simple. Every calendar year and month is
individually indexed, with gold’s close on the first trading day
recast at 100. The rest of that year’s or month’s price action is
based off this. If gold rallied 10%, its index rises to 110 no
matter where it was in its bull or what its absolute price levels
happened to be. If it fell 5%, its index always slumps to 95.
Averaging all these annual indexes together (first chart) and
monthly indexes together (second chart) yields this fascinating
gold-bull-seasonality read.

Before I delve
into why gold’s seasonality exists, there are some major
changes in this chart from
last year’s
version. Back in 2006 when I
first started
building these charts, I decided to include 2000 because gold had
started to bottom then (and the flagship HUI gold-stock index did
bottom then). But it technically wasn’t a gold-bull year so I
rolled it off this latest update. And 2011 saw an ultra-rare
massive summer
rally in gold which really changed its seasonal uptrend in July
and August.

Together rolling
off 2000 and adding 2011 greatly steepened gold’s seasonal
uptrend. The support line you see above used to be around 106 by
year-end, but in this latest iteration it has surged up near 111!
In addition the summer support approach marking the best seasonal
buying opportunity of the year shifted back from late July to
mid-June. And the annual data underlying the blue average line got
tighter, pulling in the yellow single-standard-deviation bands
significantly. Gold has sure had a fantastic year!

As this chart
reveals, gold enjoys three big demand-driven seasonal rallies.
While we all like to start in January when pondering calendar-year
chronologies, in gold’s case a better line of demarcation arrives
with the dawn of the market autumn in September. It kicks off
gold’s seasonally-strong period that runs until May, the best time
of the year to be long gold, silver, and precious-metals stocks. A
parade of income-cycle and cultural factors drives a sequential
series of demand spikes for gold all over the world.

This all starts in
August and September with Asian harvest buying. With all of Asia in
the northern hemisphere, its farmers share the same growing season
we do. And after an entire year’s heavy capital investment and hard
work, the Asian farmers start harvesting. Once their crops are
sold, they finally know for the first time all year just how much
surplus income beyond operating and living expenses their labors
generated.

Some of these
farmers, particularly in gold-crazy India where there isn’t much of
a rural banking system, plow their surplus (year’s savings) into
physical gold. Some Westerners view this as quaint, but we do the
same thing. Most of us don’t know how much surplus income we’ve
generated in a year until late December or early January (once
bonuses are paid and tax burdens are figured). After this we too
invest, just like Asian farmers. December and January typically see
big capital inflows into the stock markets.

This Asian
post-harvest buying gradually yields to India’s famous festival
season. This country has long been the world’s largest gold
consumer, although China is likely to overtake it sometime in the
coming few years. The core of Indian festivities is this country’s
famous wedding season. If you know any Indians, ask them about
wedding season. Wedding traditions in India are elaborate and
fascinating, and drive what is usually the world’s biggest
gold-demand spike of the entire year.

Marriages in India
are so important that most are arranged by families, with grooms and
brides sometimes never even knowing each other before their parents
introduce them. The timing of these weddings is critical too, as
Indians believe getting married during festival season increases
couples’ odds for success, longevity, happiness, and good luck
together. Who wouldn’t want such great blessings in their
marriage? The autumn festivals including Diwali are the most
auspicious times to tie the knot.

The families of
Indian brides pay fortunes to outfit them with extensive gold
dowries. Much of this is in the form of incredibly-intricate
22-karat jewelry the bride can wear on the most important day of her
life. Not only is this gold a beautiful adornment, this metal’s
intrinsic value helps secure the bride’s financial independence
within her husband’s family. Parents offering brides spare no
expense in buying these gold dowries, which is why Indian gold
demand soars in autumn.

In normal years,
something like 40% of India’s entire annual gold demand occurs
during this autumn wedding season! It tapers off in late November,
so we are probably almost through it this year. But gold’s strong
seasonal period continues as we start our own festival season here
in the West, the crazy spending frenzy that erupts during
Thanksgiving week and remains strong leading into Christmas. A big
portion, if not the majority, of annual discretionary
spending in the West occurs in these 5 weeks. So I try to avoid the
malls like the Black Death between now and year-end!

There is a mammoth
surge in gold-jewelry demand as holiday dollars flow into gifts for
wives, girlfriends, daughters, and mothers. Apparently many
jewelers do well over half of their entire year’s sales
between Thanksgiving and Christmas! Our festival season tends to
make everyone happier too, all the family time is a huge blessing.
This creates a great psychological boost for consumers and investors
alike, which combines with income-cycle factors like year-end
bonuses to drive big gold investment demand.

Like those Asian
farmers, here in the West we finally figure out how much surplus
income we’ve earned in a year beyond our expenses and taxes in
December and January. And since letting these new savings languish
in zero-yielding cash courtesy of the Fed is foolish, we invest
them. Much flows into the stock markets, but increasing amounts are
pouring into gold as more mainstream investors learn about its
strong secular
bull. Professional money managers also contribute to and
amplify this demand.

Each January,
pension-fund managers see a deluge of new capital from payroll
deductions swollen to include annual bonuses. They are paid to put
this money to work, and gold has been one of the best and
most-consistent performers every year for over a decade.
Such bullish price action is very alluring for capital. Gold also
offers great downside protection in exceptionally-volatile markets,
which we have seen in spades since 2008’s stock panic. So this
dynamic tends to keep gold prices rallying through January.

After these big
Western demand spikes subside, a similar festival season emerges in
China. Unlike our Western calendar driven by solar cycles, the
Chinese calendar also considers lunar cycles. So the Chinese New
Year typically falls between late January and mid-February on our
Western calendar. The Chinese have a deep cultural affinity
for gold, so they plow some of their year-end surplus-income
investments into it as well as buying it for festival-season gifts.
But after February’s strong Chinese gold demand, we tend to see a
seasonal slump in March as the parade of festivals around the world
ceases.

But interestingly
gold tends to surge again in April and May, and this spring rally
doesn’t have a clear cultural or income-cycle driver. I suspect it
is the result of the same psychological phenomenon that leads to
general-stock buying in the spring. After emerging from a dark cold
winter, everyone feels happier and more optimistic as daylight
lengthens and temperatures rise. And since sentiment intimately
drives investment demand, traders who feel better for any reason
at all are more likely to deploy capital. Hence the strong
spring gold rallies.

So as you can see,
there are very good reasons behind the parade of outsized
gold-demand spikes from September to May. They drive a series of
major seasonal rallies in gold, which are labeled in this chart.
Chronologically in a calendar year, the first starts in mid-March
and runs 5.1% higher on average by mid-May. The second now starts
in mid-June (it used to be late July) and climbs until early
October, seeing gold surge 7.4% higher on average between 2001 and
2011. Finally the third and strongest starts powering heavenwards
in late October before peaking an average of 10.4% higher in
late February.

Seasonally the
best times of the year to go long gold, silver, and precious-metals
stocks are at the dawns of these three major rallies (mid-March,
mid-June, late October). Gold is near its seasonal support then,
marking great times to buy relatively low within any given calendar
year. And note that late October’s major buying op, which our
subscribers knew about in advance, subsequently erupted into a sharp
gold rally in recent weeks. And if seasonality continues to hold
true this year, this rally is just getting started. Gold’s big
seasonal breakout above its resistance line is nearly upon us, a
very bullish omen.

Gold’s
seasonally-strong period between September and May is offset by its
seasonally-weak period in the summer. Normally this is a sentiment
wasteland for gold, where it drifts listlessly sideways in a morass
I call the summer
doldrums. Though gold soared in this latest July and August in
a huge rally,
it was a total anomaly driven by the psychological impact of a
series of unique events we’ll never see again (primarily the
first-ever USA debt downgrade). So I wouldn’t bet against the
summer doldrums next year, as gold has never done anywhere near as
well in any summer before 2011 in this secular bull.

While these annual
seasonals are the meat of this analysis, gold’s monthly seasonals
offer some additional detail. Each calendar month’s gold price
action is individually indexed and then averaged across this entire
bull, resulting in this chart. This perspective offers deeper
insights into gold’s intra-month action, further fine-tuning the
usefulness of gold bull seasonals for helping time trades.

The same three
great buying points from the first chart are readily apparent in
this alternate format. The best times of the year to go long gold,
silver, and the PM stocks seasonally are mid-March, mid-June, and
late October. Incidentally, these are really the only weak months
of the year for this metal. Gold’s secular-bull ascent over the
last decade has been remarkably steady, usually powering higher on
balance.

Gold’s best
calendar months seasonally are November, September, December, and
May. Between 2001 and 2011 they saw huge average rallies of 4.6%,
3.2%, 2.5%, and 2.4% respectively. And note how November, December,
January, and February all tend to see gold end near its monthly
highs on average. The gold bull seasonals truly are outstanding
this time of the year, very bullish heading into spring.

Though these
seasonals are merely a secondary driver, subordinate to greed and
fear, they still offer excellent insights into trade timing for
speculators and investors alike. Since trading is a giant
probabilities game, anything we can do to tilt the odds farther in
our favor is very welcome. And buying gold, silver, and PM stocks
near gold’s seasonal lows is an easy and effective way to do it.
Then when you are ready to sell, consider exiting near gold’s
seasonal peaks in late February, mid-May, or early October. Buying
low and selling high is essential, and understanding seasonality can
help you do it.

At Zeal we’ve been
actively trading this gold bull for over a decade now, since its
very dawn, with great success. And after relentlessly studying gold
all these years, I continue to be amazed at how strong and
predictive its seasonality has been. It is one of many trading
tools we’ve developed to help optimize our buy-and-sell timing,
leading to big profits for our subscribers. Since 2001, all 591
stock trades
recommended in our subscription newsletters have averaged stellar
annualized realized gains of +51%!

Growing your
capital at 50%+ annual rates is certainly no accident, it requires
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The bottom line is
demand-driven seasonals have been a powerful force shaping this
secular gold bull. A variety of income-cycle and cultural factors
around the globe combine to drive major gold rallies at certain
times of the year. Though seasonals are a secondary driver that can
be temporarily overridden by excessive greed or fear, they are still
a fantastic tool to help time entries and exits in gold-related
trades.

And right now we
are heading into gold’s strongest time of the year seasonally, its
biggest seasonal rally. On average throughout this secular bull,
gold has soared 10.4% higher between late October and late
February! The longer you wait to deploy, the less you will be able
to harness these major seasonal tailwinds. And with gold far from
overbought today, there is no sentiment reason not to be
aggressively long.